EC 3300 Principles of Microeconomics MIDTERM EXAM QUESTIONS & ANSWERS

EC 3300 Principles of Microeconomics MIDTERM EXAM QUESTIONS & ANSWERS

1. Question: In the context of consumer theory, the substitution
effect of a price decrease can be best described as:
 - A. The change in consumption resulting from a relative price
change while maintaining a constant utility level.
 - B. The shift in demand due to a change in consumer income.
 - C. The reduction in quantity demanded due to a price increase.
 - D. Consumer preference changes over time.
 Answer: A. The change in consumption resulting from a
relative price change while maintaining a constant utility level.

 Rationale: This definition captures the essence of the
substitution effect, which holds utility constant and only varies
prices.
2. Question: Assume a monopolistically competitive market. In
the long run, firms in this market:
 - A. Earn positive economic profits.
 - B. Exit the market.
 - C. Earn zero economic profits.
 - D. Earn negative economic profits.

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